The role of markets Flashcards
What is meant by specialisation and the division of labour?
This occurs when individuals, firms, or countries focus on producing a limited range of goods or services. By concentrating on what they are best at, they can increase productivity and efficiency.
This involves breaking down the production process into different stages, with each worker focusing on a specific task. This increases efficiency by allowing workers to become skilled in their assigned tasks.
How do specialisation and the division help to address the basic economic
problem?
The basic economic problem is scarcity-limited resources versus unlimited wants. Specialisation and division of labour increase productivity, meaning more goods and services can be produced with the same resources, helping to better allocate scarce resources.
What is a barter system?
This is an exchange system where goods and services are traded directly without money. For example, a farmer might exchange grain for meat from a butcher.
What is meant by “double coincidence of wants”?
In a barter system, both parties must want what the other has to offer at the same time. For example, if the farmer wants meat and the butcher wants grain, a trade can happen.
What are the various roles of money?
- Medium of Exchange: It facilitates trade by eliminating the need for a double coincidence of wants.
- Store of Value: It holds value over time, allowing individuals to save.
- Unit of Account: It provides a standard measure of value, making it easier to compare prices.
- Standard of Deferred Payment:
It allows for future payments, like loans or credit.
Why is money acting as a medium of exchange so important in an economy?
Money simplifies transactions by allowing people to trade without needing a direct barter. This enables more complex and larger economies to function smoothly.
What is productivity in economics, and why is it so important?
This refers to the amount of goods or services produced per unit of input (e.g., labour or capital). Higher productivity means more output with the same resources, which is crucial for economic growth.
What do we mean by “demand” in economics?
The quantity of a good or service consumers are willing and able to buy at various prices during a specific period.
Why is the demand curve downward sloping?
It slopes downward because, all else being equal, as the price of a good falls, the quantity demanded increases (law of demand).
How does a change in price affect the quantity demanded in a market?
A fall in price typically increases the quantity demanded, while a rise in price decreases it.
What causes the entire demand curve to shift?
Changes in non-price factors such as income, tastes, prices of substitutes or complements, and consumer expectations shift the entire demand curve.
How do we derive demand curves for an entire market?
Derived by summing the individual demand curves of all consumers in the market.
What is meant by joint demand in economics?
This occurs when two goods are demanded together, such as printers and ink.
What is meant by competitive demand in economics?
Occurs when goods are substitutes for each other, like tea and coffee.
What is meant by composite demand in economics?
When a good is demanded for multiple uses, like oil (used for fuel, plastics, etc.).
What are complements in economics?
Goods consumed together, like bread and butter.
What are substitutes in economics?
Goods that can replace each other, like Coke and Pepsi.
What do we mean by “supply” in economics?
The quantity of a good or service that producers are willing and able to sell at various prices during a specific period.
How do we derive the supply curve?
The upward slope reflects that as price increases, the quantity supp’” increases.
Why is the market supply curve upward sloping?
What is an increase / decrease in supply?
What factors would cause an entire S-curve to shift?
Factors like changes in production costs, technology, taxes, or subsidies shift the entire curve.
How do we derive supply curves for an entire market?
Individual Firm Supply Curves: Determine each firm’s supply curve based on its marginal cost, typically above average variable costs.
Horizontal Summation: Sum the quantities supplied by all firms at each price level to create the market supply curve.
Consider Factors: Account for the number of firms, market entry/exit, and external influences (like technology and input prices) that can shift the supply curve.
What is meant by joint supply in economics?
Answer: Joint supply occurs when the production of one good results in the production of another good. For example, when cattle are raised for beef, their hides can also be used to produce leather.
